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B. Corporate sales model

Since corporate users usually need a large number of licensed copies of the software, the suppliers do not usually provide corporate users a CD-ROM for each of the copies. Instead, corporate users are provided with a master copy and a certain number of licenses. From the view point of the Copyright Law, this sales model does not affect the relevant legal relationships which refer to the transfer of ownership of the medium, the transfer of the copy of the software and copyright licensing.

Under the corporate sales model, software is usually resalable as in the traditional sales model, if the sale involves the transfer of the medium carrying the software such as a master copy on a CD-ROM. However, if the corporate client only purchased the license right to use the software -- for example, only paid for an increase in the number of software users -- based on the current practice, it would be difficult to implement a lawful resale. In practice, the judges may also evaluate a sales activity according to the PRC Anti-Monopoly Law or the PRC Anti-Unfair Competition Law on a case-by-case basis.

C. Online sales model

The increased usage of the Internet and the expansion of bandwidth have caused fundamental changes to the sale of software. Software suppliers do not need to provide CD-ROM for their products; instead, they may direct their clients to the designated websites where the clients can download the software. After downloading the software on their computer, the clients can install and activate the software with the registration code or serial number provided by the software suppliers. Compared with the first two sales models, the possession of the medium containing the software does not shift from the suppliers to their clients. Therefore, this type of sale only involves transferring the copy of the software and licensing.

Online sale of software is merely an act of licensing. According to the Regulations on the Protection of Software Copyright, the copyright owner is entitled to all copyrights which are not clearly mentioned otherwise and the licensee shall not sub-license such rights. Therefore, unless otherwise specifically stated in a written agreement, reselling software by transferring registration codes or accounts infringes the copyright of the software owners and is prohibited by the existing PRC laws.

D. Sales of distributed software

As the Internet evolves, software no longer runs on stand-alone computers, instead, the actual running of software requires simultaneous running of both server software and the client software. A typical example of distributed software is online game software, where the distributors of online game software are also acting as server providers. These companies only provide clients with the installation software for clients' computer with related use right license for logging on to the server. The sale of this type of software involves the license of the client terminal software and the server software, and the scopes of the said two licenses are also different. The license of the client software includes the authorization for client terminal software installation, copying and operation, and the license of the server software only grants the clients use right to access the server from their terminals. In other words, the former license grants the client's use right under the Copyright Law, and the latter license merely allows the functional use of the software for the purpose of visiting a server.

The scope of license for distributed software varies since such software usually differentiates between client terminal software and server software. Therefore, whether distributed software can be resold and to what extent it can be resold should be decided on a case-by-case basis.

Theoretically, the exhaustion of rights is equally applicable to software, which is a form of work. In practice, however, problems arise when the software is "licensed" to public users, since the "doctrine of exhaustion of rights" only applies to the distribution methods of "sale" or "gifting". Under such circumstances, software licensing will not trigger the exhaustion of distribution rights. However, the sale of software will inevitably involve licensing and is usually subject to software licensing agreements. Therefore, the key factor which determines whether the exhaustion of distribution rights occurs depends on when a sale of software constitutes "sale" and when it constitutes "license"; this factor also determines whether a resale of software constitutes copyright infringement. Different jurisdictions have developed their own approach towards this issue.

In the United States, for example, ProCD Corp. v. Zerdenberg, the United States Court of Appeals for the Seventh Circuit established three criteria on how to distinguish a sale activity from licensing:

1. Purchasers of mass-market software pay a single purchase price rather than a series of royalties;

2. The software publisher does not retain title to the "product" as a security interest; and

3. The rights of the licensee to the software copy are perpetual, like the rights of a purchaser pursuant to a sale

China has developed its own criteria for the applicability of the doctrine of exhaustion of rights with a reference to the theories and laws of other jurisdictions. Under Chinese criteria, the rights are exhausted if the software is distributed by way of transfer of ownership, otherwise, it should be deemed as "license" only.  On May 14, 2008, the Shanghai High People's Court rendered the final decision in respect of copyright infringement on Shanghai Shanjun Industrial Ltd., Zheng Feng v. Shanghai Jiliang Software Technology Ltd. In this case, a third party legally acquired a set of copyrighted software by Shanghai Jiliang Software Technology Ltd. ("Jiliang") and resold it to Shanghai Shanjun Industrial Ltd. ("Shanjun"). Shanjun later resold the software to another company, which is also a third party to the case. Jiliang sued Shanjun for copyright infringement.

The court held that "the copyright owner enjoys the right to distribute the original work or copies of such work by transferring proprietary rights to the public. However, once the copyrighted work or the copies are initially sold or gifted to the public under the license of the copyright owner, the copyright owner will no longer enjoy the right to control further resale of the work or its copies. In other words, the party that legally acquired the ownership of the original copyrighted work or its copies may resell or gift such work or copies or provide them to other parties without seeking further license from the copyright owner.”

The above analysis of the Court of the Second Instance has great significance for software related copyright matters in China. It not only defines the doctrine of exhaustion of distribution rights for the first time in China, but also confirms that the application of the doctrine should be determined by whether the distribution involves the change of the ownership of software. Instead of following the traditional method of merely distinguishing "sale" from ‘license", the Court instead uses a more pragmatic approach.